Over the past months, I have written a number of articles on paying for the cost of a funeral. No discussion would be complete without considering superannuation after death. Relying on a superannuation payout to help pay for a funeral should be considered the proverbial last resort, as the time that is may take for the payment to be processed will most likely exceed the time available before the funeral must to be organised.
When a person dies, their super fund may pay their remaining super (called a ‘super death benefit) to their nominated beneficiary or estate. If a deceased person did not nominate a beneficiary or the nomination was non-binding, the trustee of the fund may:
- use their discretion to decide which dependent or dependents the death benefit is paid to;
- make a payment to the deceased’s legal personal representative (executor of the deceased estate) for distribution according to the instructions in the deceased’s will.
Variations can exist if there is a reversionary pension in place which may result in no death benefits being paid out of the fund.
Superannuation laws sets out who a death benefit is payable to and taxation law sets out how the benefits will be taxed. Different rules exist for who is a dependent when making a super death benefit payment (superannuation law) and the resulting tax treatment (taxation law). This all adds to the complexity and time involved in accessing superannuation proceeds.
How tax applies
The tax on a death benefit depends on:
- whether you were a dependent of the deceased under taxation law
- whether it is paid as a lump sum or income stream
- whether the super is tax-free or taxable and whether the fund already paid tax on the taxable component
- your age and the age of the deceased person when they died (for income streams).
How to apply
If you believe you’re the beneficiary of a deceased person’s super or are the trustee of a person’s estate, contact their fund to let them know the person has died and ask them to release the person’s super. The first steps involve contacting the superfund and ascertaining what evidence they may require in relation to the death.
What is required
As you would expect, there are quite stringent requirements in relation to accessing superannuation upon death. Hence, planning to use the money to pay for a funeral may be problematic. Most funds would expect you to call them to start the process. This may include providing some detailed personal information such as;
- Member number
- The account number
- Details of the deceased’s spouse, de facto and children
- Details of someone financially dependent on the deceased or was in an interdependent relationship
- Details of any other person living with the deceased as the time of death
- A certified copy of the Will, Grant of Probate or Letters of Administration
- Details of the executor
- In order to prove the bona fides of a de facto relationship with the deceased, a claimant should attach two statutory declarations completed by two family members or family friends verifying the nature and duration of the relationship and stating how the relationship meets the criteria
- A statutory declaration by the applicant
- May need to provide a certified copy of one of the following documents:
- current Australian state/territory driver’s licence containing your photograph
- Australian passport
- current Australian state/territory proof of age card containing your photograph
- current passport, similar travel document or national identity card issued by a foreign government or the UN, containing a photograph and either a signature or a unique identifier
For more information regarding financing for funerals, click here. If you require any further assistance, contact a Tax Champion today on (03) 8383 1000.